Wednesday, January 8, 2014

The taxi app wars are about to get a whole lot more interesting. German taxi startup, mytaxi, founded back in 2009 and currently operating in six markets with 10 million app downloads under its belt, is planning to switch from taking a fixed fee cut of taxi journeys to a marketplace model where drivers choose the percentage revenue per journey to give over. Pricing can be set at between 3% and 30% of the final fare.
Driving jobs are then assigned by mytaxi taking the level of revenue share into consideration. mytaxi is claiming this real time bidding system is the first example of an auction model being applied in the taxi industry.
Co-founder Sven Kuelper told TechCrunch it has just sent out new contracts to the 45,000 drivers using its app detailing the pricing model changes. The marketplace model is due to go live on February 1, with the mytaxi driver app getting an update on January 20 that will add the slider function (pictured above) to allow drivers to select their chosen revenue share.
Discussing why it’s making the switch from fixed fee to flexible percentage, Kuelper said an auction model makes sense for the taxi industry being as the value of a taxi journey varies, depending on demand. And demand varies according to a plethora of factors such as time of day, season, location and other even more volatile variables such as the weather.
All of which, he argued, gives taxi drivers an incentive to be flexible in how much revenue they share with the company that’s sending driving jobs their way.
mytaxi has developed an algorithm to use the auction model to determine how to distribute jobs by taking the size of the revenue share a driver is willing to give into consideration — along with other factors crucial to ensuring a quality taxi service: namely the distance a taxi is away from the customer wanting a cab, and the quality rating the taxi has.
“It’s a delicate balance and we have to do our learnings,” said Kuelper. “At the beginning, for example, we will be really careful which means that the price [revenue percentage] hasn’t got the highest rating [within the algorithm] but the distance to the customer and quality has the higher rating. And then when we see it works out, then we change the balance.”
Being as it’s treading new ground, Kuelper said it’s hard to predict what sort of average revenue share mytaxi is going to get from the new pricing system — but he estimated it could be around 10%.
Of course there’s a risk it ends up at the lower end too — with mytaxi then likely getting even less than its current fixed fee cut of 79 cents per journey. Kuelper described that as the “biggest risk” of the new pricing model.
Another risk in switching from the simplicity of a fixed fee to a variable marketplace is creating pricing complexity that’s off-putting for drivers — being as they are continuously required to weigh up where to set the level of revenue share vs their driver peers.
But Kuelper argued that this is likely to be seen as a benefit by drivers, being as it gives them the flexibility to determine how much they want to make — and to increase their chances of making some money when there is low demand for cabs.
“There are certain advantages for the drivers that they really appreciate — in terms of flexibility and, for example, also that quality also matters. If they are offering a good quality with a brand new car and a nice driver they will also get more tours. This is also taken into consideration and this is something that they will like. And that they can really actively determine how much revenue they want to make,” he added.
mytaxi will also be providing a guideline for drivers as to the current market price for a journey — based on the percentages selected by other drivers in the area. These percentages will be displayed in the app, giving the driver more context when setting their own revenue share at that location and time of day.
mytaxi currently operates mostly in European cities but is also in the U.S. in Washington DC. Its five current European markets are Germany, Austria, Switzerland, Poland and Spain, with its home market of Germany being the strongest.
Kuelper told TechCrunch mytaxi is eyeing up expansion into new markets but said it isn’t disclosing specific target markets at this point.
mytaxi competes against the likes of Hailo, Uber, GetTaxi and Easy Taxi to name a few of the hoards of taxi app startups in circulation, and has raised a total of $30 million funding since launch — with investors including T-Venture Holding (Deutsche Telekom), Daimler Mobility Services (Daimler), KfW, e42 GmbH, Lars Hinrichs (Cinco Capital).
Kuelper said it’s not currently looking to raise any more funding at this point, having closed its last tranche (a Series C) in October. He also said it’s anticipating becoming profitable by the middle or end of this year.